Tax laws are complex, and ever changing. In addition, there are multiple taxing authorities that put rules and regulations in place impacting even the simplest of transactions. One consequence of doing business in many locales is an increase in the complexity of an organization's procedures designed to facilitate tax compliance. Because of political boundary variations, changing laws and regulations, new forms of products, and new business innovations, transaction taxes and tax compliance represent a substantial part of any organization's cost structure. In the United States alone, there are over 7,500 tax jurisdictions, including states, cities, counties, and subsections of cities and counties. The location of an organization's warehouses, stores, and/or customers may all impact the organization's tax obligations as it does business electronically, or via traditional “brick and mortar” mechanisms.
Transaction taxes generally relate to the transfer (i.e., the purchase or sale) of goods and/or services. Special transactional taxes may exist in various locales for certain types of goods (e.g., alcohol may be subject to an excise tax, or communications services may be subject to a telecom tax), but generally, there are three main categories of transactional taxes: turnover tax; sales and use tax; and value added tax. While all three categories of taxes represent a tax on the sale of supplies (i.e., goods and/or services), they differ in many important ways, such as how the tax is calculated and to whom the tax is owed, thereby further complicating tax compliance procedures and reporting. In addition, considerations such as exemptions, specially negotiated rates, and the like, must be taken into consideration by an organization's tax professional in order to prevent miscalculation of taxes, which may lead to overpayment, or penalties for underpayment.
In general, tax laws are created and enacted in broad strokes, such as all countries in the European Union assessing a special reduced rate for a given petroleum byproduct, or all cities in California may charge up to 1% for food stamp eligible items. However, it is often the case that individual taxing authorities create their own exceptions or enhancements to these rules. It may be that one of the EU countries only assesses tax if the seller is registered and established, and it could be that several cities in California only assess a ½ % tax for food stamp eligible items.
In order to handle such situations, previous systems and methods force users to store redundant data and implement multiple tax engines. Such systems require software updates whenever there is a change in the tax law by any taxing authority.
It would be desirable, therefore, to have a system and method of processing tax which decouples each taxing authority from the geographical regions (zones) over which they hold taxing jurisdiction, such that there would not be a need to generate large tax tables with greatly repetitive data.
In addition, it would be desirable to have a system and method of processing tax information where the addition of an authority, and/or the implementing of an authority's processing rules can be incorporated into the system merely by updating a small amount of data.
Further, it would be desirable to have a single system which handles multiple types of authorities, removing the need to maintain disparate systems.